There is evidence that it may go back further. The earliest joint-stock firms in England – what today we would call publicly held companies – date back to the mid-16th century. One of the first was the Muscovy Co., formed by adventurer Sebastian Cabot in 1555.

By the late 16th and early 17th century, many English merchants had plunked surplus cash into shares of corporations that promised to exploit the newfound wealth of North America. It was one of the first IPO booms in history. To give just one example, the Massachusetts Bay Company was an investment – or, more accurately, a speculation – before it turned into a colony.

Many of these deals ended badly.

Years ago, I was fortunate enough to correspond with the great language maven William Safire about the term “bubble.” (To see our discussion, go here and enter “bubble” in the Search Inside This Book window.)

I pointed out that to bubble, meaning to cheat, to trick or to be victimized, was a common term in England at least 40 years before the Mississippi Co. mania. As a noun, “bubble” was a synonym for someone who had been robbed or defrauded. It appears at least three times in William Wycherley’s bawdy comic play, The Country Wife (1675) and again in the prologue of William Congreve’s racy romance, The Way of the World (1700).

In Act V, Scene 1 of Sir George Etherege’s scathing class comedy, The Man of Mode (1676), the rake Dorimant advises: “Lose it all like a frank gamester on the square, ’twill then be time enough to turn rook [swindler] and cheat it up again on a good substantial bubble.”

In my opinion, it’s entirely possible that a famous passage in Shakespeare’s Macbeth – written in 1607 – was inspired by the boom and bust in American joint-stock companies. In Act I, Scene 3, when the three witches, or “weird sisters,” disappear before explaining their prophecies, Banquo cries, “The earth hath bubbles, as the water has, and these are of them. Whither are they vanish’d?” Macbeth answers, “Into the air, and what seem’d corporal melted as breath into the wind. Would that they had stay’d!”

Shakespeare, for whom words were always freighted with multiple meanings, could well have intended this passage to draw painful laughs of recognition from the merchants in his audience. Many of these people had likely bought into the joint-stock bubbles that financed the American colonies – including the Virginia Co., which had set a tentative foothold in “Jamestowne” in 1606, just a few months before Macbeth‘s debut.

The Dutch were also familiar with the word “bubble” (which they probably borrowed from the English), as you can see here. It was closely related to the term windhandel, or “dealing in wind,” the Dutch expression for trading in securities that weren’t in the speculator’s possession, as short-sellers do today – and did back then, too. (It appears also to have referred to trading in derivatives like options and futures instead of common stock or physical commodities.)

Wind trading is first recorded shortly after the Dutch East East India Company was founded in 1602. By early 1610, the Dutch authorities had already issued their first edict to prohibit short-selling; it didn’t work. They tried again in 1621, still to no avail; the wind trade continued to blow.

Joseph Penso de la Vega, who in 1688 wrote what is commonly regarded as the world’s earliest book about the stock market, Confusion de Confusiones, was familiar with windhandel. In one striking passage, he writes of a stratagem used by short-sellers at the Amsterdam exchange:

…they offer for the stocks more than the price of the day (what we call ‘inflating’ the price). They influence the price this way in order to sell [short] at the higher figure and thus to gain in the end. God with one breath breathed life into Adam, whereas the bears take the life of many people by inflating the price [of the shares]….

In my opinion, this image – pumping up prices by puffing them full of air – is the most logical derivation of the financial term “bubble.”

A bubble literally brought stock prices to life. As a Portuguese Jew who had written Hebrew poetry and considered becoming a rabbi, de la Vega knew well that the Hebrew word for “breath” or “wind,” ruach, also means “spirit” or “soul.” (The same was true in other ancient languages: In Greek, pneuma meant “soul,” but its other meaning of “breath” or “wind” survives in modern terms like pneumatic drill and pneumonia. And, of course, to “animate,” from the Latin anima, means literally to breathe life into someone or something.)

After several bubbles had blown up and then burst, windhandel acquired a more scatological meaning. An explicit Dutch engraving from 1720, “Arelquyn Actionist,” or “Harlequin the Stockbroker,” shows securities dealers selling their offerings to a speculative mob through a unique distribution system: by breaking wind. Customers snatch stock certificates from the streams of gas blasting out of the brokers’ posteriors – a fitting metaphor for investments that ended up too foul to touch.

(Engravings like this one, reports Anne Goldgar in her fascinating history Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, were sometimes snipped from bound books and made into playing cards for wealthy gamblers who hadn’t lost all their money in the financial markets. Warning: Don’t show this engraving to your young children unless you want them to keep all their future savings in Treasury bills.)

This vulgar meaning of windhandel may already be foreshadowed in Macbeth, when the three sisters cackle, “I’ll give thee a wind…. And I another.”

From almost the very beginning of financial markets, people have understood that bubbles turn from invigorating to disastrous in the wink of an eye. Recognizing and steering clear of them, however, has never been easy and probably never will be.